The South African economy will focus and have its course determined by “the three Rs”, Standard Corporate and Merchant Bank (SCMB) managing director Ben Kruger said on Tuesday.
In his opening remarks at SCMB’s presentation on the economy in 2004, Kruger said: “The three Rs in this case are not the ones you learnt at primary school, but are races, rates and the rand.”
The races he referred to are both the physical races taking place in Athens during the Olympic Games and the election races taking place in South Africa, Iraq and the United States during 2004.
The rates are a reference to interest rates, which are determined by and also determine the level of the rand.
“In the recent past the Chinese Year of the Monkey has been inauspicious ones filled with strife and uncertainty. In 1968 we had worldwide student riots, and the Tet offensive in Vietnam. In 1992, President Bill Clinton was elected, US troops withdrew from Somalia and the global economy was coming out of recession. This year will hopefully be better,” Rob van Eyden, SCMB’s head of research, said.
Treasury economist Goolam Ballim had no doubt that the global economy will have a better year than last year or 2002.
“We are looking at the US economy expanding by 4,5% this year compared with 3% last year. That will help to push global growth to 4,2%, the best in at least 20 years. The growth will not be solely dependent on the US economy, as China will grow by 7%, Japan will continue its recent recovery and even Euroland will register 1,9% growth from 0,5% last year,” Ballim said.
The better global economy will then be reflected in a stronger South African economy, which was forecast to grow by 2,8% compared with 1,5% last year.
This growth will not be dependent on a weaker rand, which is forecast to average R7,10 per dollar compared with last year’s R7,50.
“South African exports are geared far more towards what happens with global demand, than what happens with the rand. In 2002, when we had the weakest rand [to date] on an annual average basis, merchandise volumes contracted by 4%, yet in 1999, when we had a stable rand, volumes rose by near 4%,” Samantha Springfield, SCMB’s financial markets economist, said.
She said the winners in 2004 will be the manufacturing, mining and internal trade sectors, while agriculture will be the big loser.
“The impact of the drought on food prices means that CPIX inflation will bottom in March. This in turn implies that there will be no interest-rate cuts this year with a chance that interest rates could be raised towards the end of the year,” she said.
Ballim foresaw no event risk from the South African elections, but an attack on the US or American interests elsewhere in the world remains the major geopolitical risk.
Unfortunately it is impossible to predict the likelihood of such an event risk, so it has to be factored in as a wild card.
To encourage participation from the more than 200-strong audience, SCMB posed some multiple-choice questions, which could be polled instantly using the Digivote system.
More than 60% of the audience, composed of corporate treasurers and financial market participants, said it is unlikely that there will be another terrorist event of the magnitude of September 11 2001.
The favourite year-end exchange rate was R8 per US dollar where the choice was in rand multiples ranging from 4 to 10.
The audience also felt that the year-end US dollar per euro rate will either be 1,30 (35%) or 1,40 (20%). Only 44,8% of the audience felt South Africans will be better off in five years’ time compared with 36% who felt there will be no change.
South Africa broke the R1-trillion annual nominal gross domestic product (GDP) barrier during 2002 as the nominal GDP reached R1,12-trillion.
When the African National Congress became the ruling party in 1994, the annual GDP was less than half that at R482,199-billion.
The doubling since 1994 is largely due to inflation, but there has also been consistent growth, with not a single year since 1994 showing a contraction in real terms.
In May 2003, South Africa entered its longest “upward economic phase” to date, as the previous longest upward phase lasted from September 1961 to April 1965. The current upward phase started in September 1999. — I-Net Bridge